Indonesia ministry looks at amending regulation for ride-hailing services in the country. Two government officials said the country is planning to fix the rates that drivers and riders avail for car or bike booking services.

According to the report by Reuters, the government’s move may create potential obstacles in the expansion for both Go-Jek and Singapore-based Grab.

Both the companies have been dominant players in the ride-hailing industry of the Southeast Asia region. The regulatory amendment will affect the companies’ development in pricing wars to attract maximum riders.

Ensuring Drivers’ Safety

Indonesia’s Ministry of Transportation plans to implement minimum and maximum tariffs for car and motor bike ride-hailing that will be “higher than Go-Jek and Grab’s current rates” and impose limits on promotional price cuts, said Budi Setyadi, director general of land transportation at the ministry in an interview with Reuters.

The ministry added that the step has been taken for the safety and protection of drivers.

According to the information by ministry, the incentive-driven payments to drivers and low-fixed rates set by company for per kilometer was forcing drivers to work overtime. Hence, this move will work in favour of drivers and riders from the financial perspective.

The director of the ministry of Public Transportation Ahmad Yanisaid Grab paid 1,200 rupiah ($0.085) per km (0.6 miles) with a focus on bonuses, while Go-Jek’s rate was 1,400 rupiah ($0.099) per km.

Over the past year, motorcycle taxi drivers working for Grab and Go-jek in Jakarta have held protest rallies calling for higher fares and better conditions. During the early months of 2018, the chauffeurs demanded that they must have a legal umbrella on them by rationalizing the tariff and raise it to Rp4,000 per kilometer.

After the validation of drivers demand, the government has capped the rates at 3,500 to 6,000 rupiah per km in the islands of Java, Sumatra and Bali, which is even higher than the expected rate.

As per ministry, the changed rates will be implemented this year from June onward in Indonesia.The officials said fixed fare ranges for motor bikes were still being finalised, but would be implemented from March.

Impact on Business

In recent years, the car and motor-bike sharing companies have been instantly growing in business due to lower fares charged per kilometer to attract every category of consumer.Both Grab and Go-Jek have been into a neck-to-neck competition with their pricing and offer schemes for riders in Indonesia. The amended regulatory action may prove to be a hurdle for both the companies, as now they are confined with an upper limit in the pricing scheme.

The cheap fares might affect their business model, however, it will be interesting to witness how the players in the industry will make it profitable even after the implementation of the fixed charges by government.